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Food inflation helps UK grocers to deliver record Christmas sales but caution remains over general merchandise

Top spot in the Proactive grocer awards goes to Morrisons, while there was only real candidate for the wooden spoon – M&S
morrisons' trolleys
Food inflation hit 3.6% in December which meant the supermarkets could actually shift less in terms of volume and generate higher gross sales

Apart from Asda, which will release its figures along with those of its Wal-Mart Inc (NYSE:WMT) parent company in the coming weeks, we’ve heard from nearly all of the major UK food retailers.

First out of the block was German discounter Aldi which saw UK sales top £10bn in 2017 after its “busiest ever” Christmas season, during which sales rose 15%.

READ: Aldi's 2017 sales top £10bn for the first time after record Christmas

Like its peer Lidl – more on that further down – it has been taking market share away from the ‘Big Four’ as cautious UK consumers look for ways to reduce their outgoings.

Morrisons takes top spot

WM Morrisons PLC (LON:MRW) was next up and it reported a 2.8% rise in sales in the 10 weeks to 7 January on the back of efforts to improve customer service and offer competitive prices.

That pricing strategy will almost certainly have hurt margins, as the company said the price of a basket of key Christmas items were the same as last year despite input cost pressures arising from a weaker pound.

Short sellers had been building positions in the stock in recent months, presumably in the hope of a poor update, but they would’ve been unhappy with the 5% share price rise on the day.

Argos a worry for Sainsbury’s

Another to boast of a ‘record’ festive season was J Sainsbury plc (LON:SBRY) which “moderately” lifted its full-year profit expectations as cost savings from its takeover of Argos are coming through quicker than forecast.

Sainsbury’s saw like-for-like sales rise 1.1% in the 15 weeks to 6 January and, unlike Morrisons, it seems like it was able to do that without having to rely on higher food prices alone, with punters treating themselves to more of its Taste the Difference products.

Argos was a bit more concerning though and the company bemoaned “challenging conditions” as sales in the general merchandising division – essentially Argos plus a small input from Sainsbury’s own sales of electronics etc – fell 1.4% year-on-year.

Tesco also complains of drag from general merch

Tesco PLC (LON:TSCO) complained of a similar drag in its general merchandise business, although it still managed to generate like-for-like sales growth of 2.0% during a “record” four weeks before Christmas day.

Unsurprisingly given that grocery inflation hit 3.6% in December, food sales were the main driver of that growth, but the markets were disappointed on the whole having expected sales to rise by nearer to 3%.

Aldi reckons it’s “fastest-growing” UK supermarket

Like its discounter peer Aldi, Lidl also reported rampant sales growth over Christmas leading it to make the claim that it is the “fastest growing supermarket” in Britain.

Sales rose by 15% to record highs in December as it welcomed more shoppers through the door than ever before, with the final Friday before Christmas proving to be its “strongest ever” day of trading.

Even Waitrose dragged into price war

To the other end of the market and Waitrose – part of the John Lewis Partnership – reported gross sales of £928mln, up 1.5% versus last year on a like-for-like basis. If New Year’s Eve was included, that would rise to 2.2%.

The price war that has ravaged the industry (thank Aldi and Lidl for that) doesn’t just effect the likes of Tesco and Morrisons and Waitrose – often seen as a more ‘premium’ supermarket – Waitrose also complained of margin pressures.

M&S was just pants

Marks and Spencer Group Plc (LON:MKS) was probably the worst performer of the lot and was the only one to see sales fall.

When you think that you could sell 3.6% fewer food products in terms of volume thanks to inflation and still achieve the same amount of gross sales, registering a 0.4% decline in the final quarter of 2017 is almost a feat in itself.

Its clothing and home division didn’t fare any better – sales dipped 2.8% to £1.2bn.

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